Bank of Thailand tackles surging Thai Baht

In attempts to exert some pressure on the Thai Baht control levers, the Bank of Thailand says it’s scaling back the auction size of short-term bonds. The actions are an attempt to curb the rapid surge of the Thai Baht which hit a six-year high last Monday.

The central bank has announced that the reduction of short-term bond supply is aimed specifically at overseeing the movement of the Thai Baht. However, the market has interpreted the move as the attempt to slow the capital inflow.

Thitima Chucherd, an economist of the BOT, attributes the rise of Thai Baht to the capital inflow that has moved to safe haven assets in Thailand.

She says, “…during the financial turbulence on the market, international investors tend to apply risk-off approach by selling their assets to avoid risks in one market and holding assets such as bonds denominated in safe haven currency.”

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The Kasikorn Research Centre says…“The Bank of Thailand’s short-term bond supply reduction may be one of the initials steps to curb the movement of the Thai Baht.”

The Baht rose to hit a six year high of 30.52 to the USD on July 1, before settling slightly weaker to around 30.8 per dollar yesterday in response to the news about the central bank’s decision to reduce the short-dated note supply next month.

The central bank reduces the supply of short-term bonds, including three month, six month and one year bonds. The size of three-month and six month bonds will be cut by 5 billion baht per week in July. The supply of one-year note issuance will be cut by 10 billion baht.

International investors are viewed Thailand as safe haven because of the country’s strong economic fundamentals, backed by current account surplus and prospects in attracting foreign direct investment thanks to the government’s mega projects including the Eastern Economic Corridor and high-speed railway projects.

These factors pushed up the value of Thai Baht in spite of a series of turbulences in financial markets which prompted central banks in some countries with current account deficit such as Turkey, Argentina and Brazil, to tighten their monetary policies. Indonesia raised interest rates six times by 175 basis points last year to defend the rupiah currency.

Thailand has become one of the best performers even though Thailand has been slow in raising the policy rate. The central bank increased the interest rate to 1.75 percent in December last year, the first increase since 2011.

Already, the strong Baht has taken a toll on Thai exports which are expected to record a zero or even negative growth this year. The Sports and Tourism Ministry has also blamed the strength of the baht, in part, for a drop in some tourist demographics travelling to Thailand.


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